How Important is the New Goods Margin in International Trade?

Timothy J. Kehoe () and Kim Ruhl ()

No 733, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We examine the bilateral trade patterns of countries involved in significant trade liberalizations using detailed data on the value of trade flows by commodity. We find a striking relationship between a good's pre-liberalization share in trade and its growth subsequent to liberalization. The goods that were traded the least before the liberalization account for a disproportionate share in trade following the reduction of trade barriers. The set of goods that accounted for only 10 percent of trade before the liberalization may account for as much as 40 percent of trade following the liberalization. This new finding cannot be accounted for by the standard models of trade, which rely on increases in previously traded goods to produce trade growth. We modify the standard Dornbusch-Fischer-Samuelson model of Ricardian trade to provide a model capable of delivering these new facts. Our specification improves on previous Ricardian models by providing a technology process that can be calibrated using data on intra-industry trade

Keywords: extensive margin; trade liberalization; Ricardian model (search for similar items in EconPapers)
JEL-codes: F12 F15 F17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2006-12-03
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Related works:
Working Paper: How important is the new goods margin in international trade? (2009)
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